Did you know that the average tuition at a private college is more than $38,000 per year? Over a four-year program, that could run you more than $152,000 just in tuition costs. While public schools can be more affordable, they still cost many thousands of dollars per year too. Saving money and investing it as soon as your child is born can help make these expenses much more manageable in the future.
And a great option for this type of investment is a high-growth emerging sector where your child will grow alongside some promising up-and-coming stocks. Although it may be difficult to pick winners in rapidly changing industries, that's where exchange-traded funds (ETFs) can do the work for you. A couple of top ETFs suitable for long-term investors are the Global X Telemedicine & Digital Health ETF (EDOC -0.91%) and the Global X Robotics & Artificial Intelligence ETF (BOTZ -0.74%).
Below, I'll show you how contributing $500 each month to one of these funds could grow your portfolio to more than $1 million, and set your child or children up for life.
Image source: Getty Images.
High growth can lead to major returns
A key reason these ETFs are great options for long-term investors is the future growth the telehealth and robotics sectors hold. Analysts from Fortune Business Insights project that the global telehealth market will be worth more than $636 billion by 2028, expanding at a compounded annual growth rate (CAGR) of more than 32% until then.
Teladoc Health (TDOC -2.91%) is one of the stocks in the Global X Telemedicine & Digital Health ETF, and it is coming off a quarter where its telehealth visits increased (even as global economies started slowly recovering from the pandemic), demonstrating inelastic demand for these types of services. Other top healthcare companies in the fund include Cerner, Tandem Diabetes, and UnitedHealth Group.
The artificial intelligence (AI) robotics market is in its earlier growth stages and is worth just $6.9 billion today. But researchers at Markets and Markets estimate it will grow to a value of over $35 billion by 2026, with a higher CAGR of more than 38%. The robotics ETF includes chipmaker Nvidia, robotic surgery pioneer Intuitive Surgical, and AI-based consumer credit disruptor Upstart.
Knowing which stocks will be ubiquitous in five or 10 years is a challenge because so much can change in rapidly growing sectors. And that's where ETFs like Global X Telemedicine and Global X Robotics can make the decision-making process easier for investors, as their holdings will evolve with the industry.
How a $500 investment each month can grow to $1 million
Starting early is key to long-term investing, especially if your goal is to build up a robust nest egg for your child by the time they reach early adulthood. These ETFs likely aren't going to grow at 30% each year over the long term. But even if they can average annual growth rates between 10% and 15%, that's enough to generate significant savings over their first 18 to 25 years. Here's how your portfolio might look under these circumstances if you started investing every month since when they were born:
| Age of child | |||
|---|---|---|---|
| Annual Return | 18 | 20 | 25 |
| 10% | $302,784 | $382,848 | $668,945 |
| 12% | $382,720 | $499,574 | $948,818 |
| 15% | $552,128 | $757,977 | $1,642,037 |
Table by author.
If you invested $500 each month for 25 years, that would be a total contribution of $150,000. That alone would almost be enough to pay off the tuition at a four-year private college program. But parents know that there are many more expenses to consider beyond just tuition, including housing, transportation, and school supplies. Plus, a strong savings account can allow your child to invest in income stocks that generate recurring dividends. That's why you always want to make the most of your investment and maximize it.
Through the power of compounding, your $150,000 investment could be worth nearly 11 times that amount if you averaged an annual rate of return of 15%. At 12%, your portfolio would be a little under the $1 million mark at close to $949,000 and be worth more than six times your contributions. Either way, by investing and staying the course, you could accumulate significant gains over the years to secure your child's financial future.
Set your child up for life by buying and holding these ETFs
Year to date, neither of these two funds has performed particularly well. The telehealth ETF is down 16%, while the robotics fund is up just 10%. By comparison, the S&P 500 has risen more than 28%. But over the long term, the outlook remains strong for these sectors and investors shouldn't get discouraged by short-term returns, especially when looking at a much longer trajectory and with the focus being on building up your child's savings. The markets and these ETFs may not always generate positive returns every year, but that doesn't mean the strategy is a failure.
As the companies in these funds continue growing their sales and strengthening their bottom lines, it's inevitable that their share prices will recover and these ETFs will look a whole lot better. Investing in technological advancement is a sound strategy for the long haul and can help set your child up for life.